Detailed Rules on the Implementation of the Law of the People's Republic of China on Sino-Foreign Joint Cooperative Ventures

2010-03-31

(Valid From:1995.09.04)

(The Rules were approved by the State Council on Aug. 7, 1995 and have been commanded by Wu Yi, minister of MOFTEC being put into effect as of their promulgation on Sept. 4, 1995)

CHAPTER ONE GENERAL PROVISIONS

Article 1 This set of rules have been formulated in accordance with The Law of the People's Republic of China on Sino-Foreign Joint Cooperative Ventures.

Article 2 The establishment of Sino-Foreign joint cooperative ventures (referred to hereinafter as joint ventures) in the territories of China shall be in line with the country's development and industrial policies as well as regulations guiding foreign investment in China.

Article 3 The joint ventures can, according to the law, independently undertake their operations and management and business activities within the limits as set under the approved agreements, contracts and Articles of associations of the ventures without interference from any organizations or individuals.

Article 4 The joint ventures referred to here include those with and without Chinese legal person status.

Special provisions in Chapter 9 of these Rules shall be followed by joint ventures without Chinese legal person status.

Article 5 Departments in charge of the Chinese operators shall be in charge of the joint ventures. If a joint venture has two or more Chinese operators, the examination and approval departments shall, with consultations with other related departments, designate one specific department in charge for the administration of the joint venture, unless otherwise stipulated under the law or other administrative rules and regulations.

The departments in charge of the joint venture shall provide consultation and assistance in related affairs of the joint ventures.

CHAPTER TWO ESTABLISHMENT OF THE JOINT VENTURES

Article 6 The establishment of a joint venture shall have the approval of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) or other departments and local governments authorized by the State Council.

The establishment of joint ventures in the following occasions shall be examined and approved by the departments or local governments authorized by the State Council:

1. The total investment to the venture is within the range of those that should be examined and approved by the departments or local governments authorized by the State Council;
2. The capital has been raised by the applicants themselves and whose construction and production facilities do not need to be balanced by the State.
3. The export of its products does not need a quota or export license from departments in charge of the State, or when a quota or export license is needed, the export has been approved in advance by related departments in charge of the State prior to the submission of the project proposal.
4. Other circumstances that should be examined and approved by the departments or local governments authorized by the State Council as set under the law and administrative rules and regulations.

Article 7 The following documents shall be presented by the Chinese partners in applying for the establishment of a joint venture.

1. Project proposal of the joint venture together with the approval documents of department in charge;
2. The feasibility study report as prepared by all sides involved in the joint venture, together with approval documents of departments in charge;
3. The joint venture's agreements, contracts and Articles of association as signed by the cooperators' legal representatives or authorized representatives;
4. The partners business licenses, registration documents, capital credibility reports and other valid documents of the legal representatives. If a partner is a foreign natural person, the partner shall also present valid documents on its identification, biographical data and capital credibility;
5. A roster of the Chairman and Deputy Chairmen of the Board of Directors, members of the Board of Directors or a name list of the Chairman and Deputy Chairmen of the Joint Management Committee and members of the Joint Management Committee;
6. Other documents as deemed necessary by the examination and approval departments.
The previously listed documents, except documents submitted by the foreign partners as stated in item 4, shall have Chinese versions. Documents stated in items 2, 3 and 5 may also have copies in another foreign language as agreed upon by partners of the proposed joint venture.
The examination and approval departments shall decide whether or not approve the establishment within 45 days since the date when all necessary documents are received. In case the examination and approval departments decide that a certain document submitted is incomplete or with inappropriate contents, the departments have the right to request a revision or amendment within a certain period of time.

Article 8 The approval documents shall be issued by the MOFTEC if the joint ventures are approved by the MOFTEC or departments authorized by the State Council.

The approval documents of joint ventures approved by the local governments shall be issued by the approving local governments and be registered with the MOFTEC for the record within 30 days following the date of approval.

The joint ventures established after approval shall register with the administrative departments in charge of industry and commerce and apply for business licenses.

Article 9 Applications on the establishment of joint ventures will not be approved in one of the following occasions:

1. The proposed joint venture would make harm to China's sovereignty or social welfare;
2. The proposed joint venture would make harm to China's national security;
3. The proposed joint venture would cause pollution to the environment;
4. Other occasions that are against the laws or administrative rules and regulations and the State's industrial policy.

Article 10 The joint venture cooperation agreements referred to in this set of detailed rules are the written document jointly formulated by the partners of the joint ventures on the ventures' principles and other major matters.

The joint venture contracts referred to in this set of detailed rules are the written documents jointly formulated by the partners of the joint ventures on the rights and obligations between the partners.

The joint venture Articles of association referred to in this set of detailed rules are the written documents jointly formulated by the partners of the joint venture on the organization, operation and management and other matters of the venture in accordance with the contracts.

If there are discrepancies between the joint venture's cooperation agreement and its Articles of association on the one hand and the contract on the other hand, the stipulations in the contract shall be followed.

The partners of the joint venture may choose not to formulate a cooperation agreement.

Article 11 The joint ventures' agreements, contracts and Articles of association shall enter into force as of the date of the issuance of the establishment approval documents by the examination and approval departments. Any major revises in the agreements, contracts and Articles of association during the cooperation period shall be approved by the examination and approval departments.

Article 12 The joint ventures' contracts shall include the following data:

1. Title, place of the registration, residence and names, titles and nationalities of the legal representatives of the partners. (If the partner is a foreign natural person, his/her name, nationality and residence shall also be included);
2. The joint venture's name, site and scope of operation;
3. Total investment, registered capital, investment by each partner or forms and terms of cooperation;
4. The transfer of investment by each partner and other cooperative terms;
5. The distribution of the profits or products as well as the sharing of the risks and losses;
6. The cooperation of the joint venture's Board of Directors or Joint Management Committee, the distribution of the members of the board or the committee and the responsibilities, recruitment and dismissal of the general manager and other senior managerial staff;
7. Major equipment, production technologies adopted and their sources;
8. Arrangements on the sales of the joint venture's products inside China and overseas;
9. Arrangements on the income and expenditure of foreign exchange;
10. Operation term dismissal and liquidation of the joint venture;
11. Other obligations and responsibilities of the partners in case of violation of the contracts;
12. Principles guiding the management of the joint venture's finance, accounting and auditing;
13. The settlement of disputes between/among the partners;
14. The procedures of revising the joint ventures' contracts.

Article 13 The joint venture's Articles of association shall include the following items:

1. The name and site of the joint venture;
2. The scope of operation and cooperation term of the joint venture;
3. The names, register sites, residence of the partners as well as the names, titles and nationalities of their legal representatives (if the foreign partner is a foreign natural person, his/her name, nationality and residence shall also be included);
4. The total investment, registered capital and investment of each partner of the joint venture and the form and term of cooperation;
5. The distribution of the profits or products as well as the sharing of the risks and losses;
6. The composition, responsibilities and the rules of procedures of the joint venture's Board of Directors or Joint Management Committee; the term of members of the Board of Directors or Joint Management Committee and the power and responsibilities of the chairman and the deputy chairmen of the Board of Directors or the chairman and deputy chairmen of the Joint Management Committee;
7.The setup, responsibilities, rules of procedures of the joint venture's management and the power, responsibilities, recruitment and dismissal of the general manager and other senior managerial staff;
8. Provisions on recruitment, training, formulation of employment contracts, salary, social insurance, welfare, job safety and health etc. of the employees;
9. Financial, accounting and auditing systems of the joint venture;
10. The dismissal and liquidation of the joint venture;
11. The procedures on revising the joint venture's Articles of association.

The joint venture shall have liability for its debts with all of its capital.

Article 15 The total investment of the joint venture refers to the total capital input needed under the production and operation scope as set in the joint venture's contracts and Articles of association.

Article 16 The joint venture's registered capital refers to the total amount of capital registered by the partners with the administrative departments in charge of industry and commerce in order to establish the joint venture. The registered capital shall be expressed in the sum of RMB. It may also be calculated with another freely-convertible currency as agreed upon by the partners.

The joint venture's registered capital shall not decrease during term of cooperation. Decreases that are truly warranted by the change of the total investment and the operation scope and other changes shall be approved by the examination and approval departments.

CHAPTER FOUR INVESTMENT AND COOPERATIVE MEANS

Article 17 The partners shall, in line with the related laws, administrative regulations and provisions of the joint venture's contracts, invest in or provide cooperative means to the joint ventures.

Article 18 The partners' investment or cooperative means could be currencies, or material objects or industrial rights, special technologies, land use rights and other property rights.

The Chinese partners' investments or cooperative means, if they are State fix assets, shall undergo assets assessment in accordance with related laws and administrative regulations or provisions.

For joint ventures with Chinese legal person status, the foreign partners' investment shall normally be no less than 25% of the total registered capital of the joint venture. For Joint ventures without Chinese legal person status, the specific requirements for the partners' investments or rendition of cooperative means shall be stipulated by MOFTEC.

Article 19 The partners shall use their properties or property rights as investments or cooperative means and they shall not have the investments or cooperative means mortgaged or guaranteed through other means.

Article 20 The partners shall, in line with the needs of the joint venture's production and operation and in accordance with related laws and administrative regulations and provisions, set the term of operation in the joint venture's contracts.

If the partners fail to provide the required investment or cooperative means as stipulated under the contract, the administrative departments in charge of industry and commerce shall order them to do so within a certain period of time; If they still fail to do so after that time period expires, the examination and approval departments shall rescind the joint venture's approval documents and the administrative departments in charge of industry and commerce shall revoke the joint venture's business license and shall announce the nullification.

Article 21 The side that fails to provide investment or cooperative means in accordance with the joint venture's contracts shall bear the violation responsibilities to the other sides that have already provided the required investment or cooperative means.

Article 22 After the provision of the investments and the cooperative means by the partners, the joint venture shall issue investment certification confirming their provision after registered Chinese accountants examined the provisions and provided an examination report. The investment certification shall include the following data:

1. The name of the joint venture;
2. The establishment date of the joint venture;
3. The names of the partners;
4. The description of the investments or cooperative means rendered by the partners of the joint venture;
5. The date of the investments or cooperative means rendered by the partners of the joint venture;
6. The serial number and issuing date of the investment certification.
Copies of the investment certification shall be submitted to the examination and approval departments as well as the administrative departments in charge of industry and commerce.

Article 23 The transfer of all or parts of the property rights as set under the contracts among the partners of the joint venture or between one partner of the joint venture and others outside the joint venture shall have the written consent of the other partner(s), as well as the approval of examination and approval departments.

The examination and approval departments shall decide on whether or not to approve the transfer within 30 days after the receipt of the transfer documents.

CHAPTER FIVE ORGANIZATIONAL SETUP

Article 24 The joint venture shall have a Board of Directors or a Joint Management Committee as its executive authority, which decides on the venture's major matters in accordance with the Articles of association.

Article 25 The number of members of the Board of Directors or Joint Management Committee shall be no less than three and the distribution of the members shall be agreed upon in accordance with the investments and/or cooperative means rendered.

Article 26 Members of the Board of Directors or the Joint Management Committee shall be named or dismissed from the partners themselves. The nomination and approval of the chairman and deputy chairmen of the board or committee shall follow the procedures as set in the Articles of association. If one of the Chinese partners holds the position of chairman, the position of deputy chairman shall be held by one of the foreign partners and vice versa.

Article 27 The term of the members of the Board of Directors or Joint Management Committee shall be stipulated under the joint venture's Articles of association, but shall not exceed three years. When the chairman or member's term ends and he/she is again designated, he/she can hold the position for another term.

Article 28 Meetings of the Board of Directors or the Joint Management Committee shall be convened at least once each year and be chaired by chairman. In case the chairman cannot chair the meetings, one of the deputy chairmen or members designated by the chairman shall call and chair the meetings. If one third of the members of the board or committee so propose, the board or the committee can call a meeting.

Meetings of the Board of Directors or the Joint Management Committee shall be notified 10 days before a meeting. The Board of Directors or the Joint Management Committee may vote through communications.

Article 29 The following items can only be approved with the unanimous agreement of the members:

1. The revision of the joint venture's Article of association;
2. The increase or decrease of the joint venture's registered capital;
3. The dismissal of the joint venture;
4. The mortgage of the joint venture's assets;
5. The merger, division and change of organization structure of the joint venture;
6. Other items that can only be approved with the unanimous agreement of all members of the Board of Directors or the Joint Management Committee.

Article 30 Other matters other than stipulated in this set of detailed rules concerning the discussion and voting procedures shall be covered in the joint venture's Articles of association.

Article 31 Chairman of the Board of Directors or the Joint Management Committee is the legal representative of the joint venture. If the chairman cannot so function, he/she shall designate one of the deputy chairmen or one of the members of the board or committee to represent the joint venture in external affairs.

Article 32 The joint venture shall have one general manager in charge of daily operation and management of the joint venture as well as the Board of Director or the Joint Management Committee.

The joint venture's general manager shall be recruited or dismissed by the Board of Directors or the joint Management Committee.

Article 33 The general manager and other senior managerial staff can be either Chinese nationals or foreign nationals.

Members of the Board of Directors or the Joint Management Committee can concurrently hold the position of the general manager or other senior managerial posts, with the recruitment of the Board of Directors or the Joint Management Committee.

Article 34 The general manager or other senior managerial staff, if incompetent or involving in graft or having serious dereliction of duty, can be dismissed through a resolution of the Board of Directors or the Joint Management Committee. General manager or other senior managerial staff of a joint venture shall be responsible for all major losses of the joint venture, incurred by their our conducts.

Article 35 If a joint venture decides to entrust someone other than the partners to manage the operation of the venture, it shall have the unanimous agreement of the Board of Directors or the Joint Management Committee. The joint venture shall sign a contract with the entrustee for the entrustment.
The joint venture shall submit the resolution of the Board of Directors or the Joint Management Committee on the entrustment as well as the entrustment contract together with documents of the entrustee's credit standing to the examination and approval departments for approval. The examination and approval departments shall decide whether or not to approve within 30 days since the receipt of the related documents.

CHAPTER SIX PURCHASE OF GOODS AND MATERIALS AND SALES OF PRODUCTS

Article 36 A joint venture can formulate its own production plans in accordance with its operation scope and production scale as approved by departments in charge.

Government departments must not force the joint ventures to implement production and operation plans formulated by the government departments.

Article 37 A joint venture can independently decide to purchase in China or overseas machinery equipment, raw materials, fuels, components and parts, vehicles and office supplies (referred to hereinafter as goods and materials) it needs.

Article 38 The State encourages the joint ventures to sell their products on the international market. The joint ventures can sell their products on overseas markets by themselves or commission overseas sales agents or China's foreign trade companies to do so.

The joint ventures set the prices of their products for themselves according to the law.

Article 39 The import of machinery, equipments, components and parts as well as other goods and materials by the foreign partner as investment in the joint venture shall be exempt from import tariffs and circulating tax during the importation. The import of machinery, equipment, parts and components and other goods and materials needed in the operation and production with parts of the joint venture's total investment funds shall enjoy the same preferential treatment. If such goods and materials imported duty free are transferred or resold inside China, taxes are required to be levied or repaid.

Article 40 The joint ventures must not export their products in prices obviously lower than reasonable international prices, neither can they import goods and materials in prices obviously higher than international prices.

Article 41 The joint venture shall sell its products in accordance with related provisions as stipulated in the approved cooperation contract.

Article 42 In importing and exporting commodities that require State quota and import/export licenses, the joint ventures shall duly apply for the quota and licenses.

CHAPTER SEVEN DISTRIBUTION OF INCOMES AND RECOVERY OF INVESTMENT

Article 43 The Chinese and foreign partners of the joint ventures can get a part of the profits, products and other means in distribution of incomes of the venture as agreed by the partners.
If the income are distributed in the form of products or other means, tax shall be levied in accordance with provisions under the tax law.

Article 44 When the operation term as set in the joint venture's contract expires, if the joint venture's fixed assets have been set to be handed to the Chinese partners free of charge, the foreign partners can, during the operation term, apply to recover their investment in the following manners:

1. Aside from the distribution in accordance with the investment and/or cooperative means rendered, the foreign partner can increase its share in the distribution in the contract;
2. With the examination and approval of the finance and taxation authorities in accordance with related taxation regulations, the foreign partners recover their investment before the joint venture pays its income tax;
3. Other investment recovery measures approved by the examination and approval departments and finance and taxation departments.

When the foreign partners recover investment during the operation term as described in the previous paragraphs, the Chinese and foreign partners shall should the joint ventures' debts in accordance with provisions of related laws as well as the ventures' contracts.

Article 45 In applying for recovering investment in advance through means as described in Items 2 and 3 of Article 44, the foreign partner shall clearly specify the sum, time limit and form for investment recovery in advance for examination and approval by departments in charge after being examined and approved by finance and taxation authorities.

The foreign partner cannot recover its investment in advance before the losses of the joint venture are settled.

Article 46 The joint ventures shall, in line with related provisions of Chinese laws, commission registered Chinese accountants to audit and check their financial accounts. The partners may jointly or separately commission registered Chinese accountants to audit and check the accounts and the expenses arisen therefrom shall be paid by the party that makes the commission.

CHAPTER EIGHT OPERATION TEAM AND DISSOLUTION OF THE JOINT VENTURE

Article 47 Operation term of a joint venture shall be decided through consultation by the Chinese and foreign partners and specified in the contract.

In case the operation term of the joint venture expires, it can be extended through agreement of the partners. The extension proposal shall be submitted to the examination and approval departments 180 days before the original expiration date, clearly stating how the original contract is implemented, reasons for the extension of the term as well as agreements on issues such as the rights and obligations of the partners during the term extended. The examination and approval departments shall decide whether or not to approve within 30 days since the receipt of the application.

If the extension is approved, the joint venture can go through the formalities of changing the original registration with the approval documents. The starting of the extension is the first day after the expiration of the original term.

If the joint venture's contract stipulates that foreign partners recover their investment in advance and the recovery is made, the operation term of the joint venture cannot be extended after expiration. However, if the foreign partner increase investment and all other partners of the joint venture agree, the venture can apply for an extension of the term in the way stated in the second paragraph of this Article.

Article 48 A joint venture is dissolved under one of the following circumstances:

1. The operation term expires;
2. The joint venture's operation cannot continue due to big losses or as a result of forces majeure;
3. The joint venture's operation cannot continue as a result of the failure by one or more partners to execute the obligations stipulated in the contract and/or the Articles of association;
4. Other conditions that can lead to dissolution emerge;
5. The joint venture is ordered to close because it violates laws or administrative regulations and rules.

In the circumstances stated in Items 2 and 4, the joint venture's Board of Directors or Joint Management Committee shall make the decision of dissolution and report to the examination and approval departments for approval. Under the circumstance as stated in Item 3 of this Article, the partner(s) failing to execute the obligations stipulated in the joint venture's contract and Articles of association shall shoulder the responsibilities over the loss suffered by other sides as a result of the failure; the partner(s) abiding by the contract is (are) entitled to apply with the examination and approval departments for dissolving the joint venture.

Article 49 The liquidation of the joint venture shall be handled in accordance with related State laws and administrative regulations and rules as well as the venture's contract and Articles of association.

Article 52 For joint ventures without legal person status, partners of the ventures shall separately own the investment and/or cooperative means they rendered. But the investment and/or cooperative means can also be jointly owned, or partly jointly owned under agreement of all the partners. Assets added as a result of the joint venture's operation shall be owned by all the partners.

The investments and cooperative means rendered by the partners of a joint venture without legal person status shall be put under the unified management of the venture. None of the partners can dispose of the investment or cooperative means without the agreement of the other partners.

Article 54 Joint ventures without legal person status shall keep unified accounting books at the site of the ventures; the partners shall also have their respective account books.

CHAPTER TEN SUPPLEMENTARY PROVISIONS

Article 55 The formulation, effectiveness, interpretation, implementation and settlement of disputes of the joint ventures' contracts shall be governed by the Chinese law.

Article 56 Other matters not included in this set of detailed rule, such as the joint ventures financial affairs, accounting, audit, foreign currencies, taxation, labour management and trade unions, shall be governed by related laws and administrative regulations and rules.

Article 57 Companies, enterprises and other economic entitles as well as individuals from Hong Kong, Taiwan and Macao regions and Chinese citizens residing overseas shall follow this set of detailed rules in establishing joint ventures in China.

Article 58 This set of detailed rules goes into effect as of the date of promulgation.